How to Know You’re Charging Enough
Most business owners fret about whether they are asking too much or not enough for their goods or services. This dilemma keeps many prospective sellers up at night. Ask too much, and you may fail to attract enough customers; ask too little, and you’re cutting yourself short. In this article, we’ll examine how to determine if you are charging the right amount for your goods and services.
Many business owners begin working with an M&A advisor or business broker only to learn that a small increase in their pricing can lead to substantial increases in profit. Best of all, with the right pricing strategy, it is possible to raise your prices without your customers noticing. The fact is, you may be leaving a significant amount of money on the table right now. Having a coherent and well-thought-out pricing strategy is the first step to boosting your profits, and it can be done in surprisingly little time.
In Rafi Mohammed’s book “The Art of Pricing,” he observes that a key fallacy in business is that a product’s price should always be based on its manufacturing cost. Mohammed offers several interesting observations and suggestions. One suggestion, specifically aimed at restaurants, is that they should keep their entrée prices attractive and expect their profits to come from items like drinks, desserts, or other add-ons. He notes that McDonald’s profit margin on hamburgers is small, but they have a considerable profit margin on French fries and drinks. In short, profits and pricing should be viewed as part of a larger overarching strategy.
Another example can be found in the world of investment banks, which charge a relatively modest accomplishment fee as a percentage of total consideration. However, they then insert a substantial minimum fee.
Better pricing and better pricing strategies lead to more profits. Through better pricing, Mohammed argues that companies can increase their profits and achieve growth. He notes, “Smart pricing is like hidden profits.”
The more time you, as a business owner, invest in your pricing strategy, the greater the chances are that you’ll boost the value of your business. The facts are that small pricing increases can significantly enhance overall profits. Don’t be afraid to adopt a new pricing strategy. If your new pricing strategy fails, you can adjust your plan. The benefits of exploring new pricing options are simply too great to ignore.
Copyright: Business Brokerage Press, Inc.
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